And that doesn't even factor in buying a server if it's a colo. Which is exactly why he should be renting a dedicated and buying bandwidth at $10-$20/Mbit. It doesn't make sense to setup your own rack unless you're going to have more than a few machines. It's more expensive and a lot more work.
I think the /Mbps prices quoted are a bit on the high side (you can get cheap transit at 5GBP/Mbps if you deal in reasonable commits). Apart from dropping your own line in there's no cheaper way I know of to achieve the quality.
Use of a CDN would allow less capital outlay on the standard http hosting (could use dedis, vm, cloud) and somewhat instant scalability. Once you know your traffic patterns your implementation options sometimes get made for you.
Good point on the CDN, "streaming" can sometimes be non-CDN compatible (although "CDN" is a wide ranging term).
Were it me, I'd start with an $800 1U box in a decent colo somewhere. Add another one on the opposite coast when the first started to get above 50% utilization and then scale from there.
Four of these: Xeon 3210 - SATA 250 GB IDE/SATA HDD 2 GB 2000 GB 5 IPs $199.00
Or one of these ~Dual Xeon 2.8, 8 x 300 GB 10K RPM SCSI/SAS HDD 2 x 73 GB 10K RPM SCSI/SAS HDD 8 GB RAM 3000 GB Bandwidth 5 IPs $799.00
Which can take a lot of traffic. IMO Colo is great when you want to use lots of heavy duty HW and little bandwidth but for front end web servers you need a lot of traffic before it's reasonable.
Until your site goes viral, quashes your "dedicated" server (or the providers upstream bandwidth) and your customers are met with some fail-whale variant.
Use a rented server to get off the ground and get the prototype out there, but don't try to build a backbone on that model. Especially when you're going to be doing streaming, your uptime IS your product, renting a server is like trying to start a livery service by going to Avis every morning and renting a car each day. It will work great, until it doesn't, and you're left scrambling.
Most sites don't "go viral". A reasonably powerful dedicated server can handle serving an incredible number of requests for static content. Any good host (like ServerBeach) is going to have far more bandwidth to spare than what you're running to your own rack. They can also give you additional servers in an hour or two in an emergency. Far more quickly than you can buy and install your own.
Using dedicated servers these days is not like it was in the past. Servers are far more powerful and bandwidth is far cheaper. One beefy server can do what a dozen older generation machines could do. That 40 server rack in 2001 is a couple dedicated servers in 2008. For me, at least.